WEBVTT - A Profound Economic Problem 0:00:15.396 --> 0:00:22.476 Pushkin from Pushkin Industries. This is Deep Background, the show 0:00:22.516 --> 0:00:25.836 where we explore the stories behind the stories in the news. 0:00:26.316 --> 0:00:31.396 I'm Noah Feldman. As the coronavirus pandemic continues, the economic 0:00:31.476 --> 0:00:35.436 situation is becoming more dire by the day. Not only 0:00:35.476 --> 0:00:38.716 have an enormous number of businesses closed, but more people 0:00:38.796 --> 0:00:42.036 have filed for unemployment here in the United States, faster 0:00:42.076 --> 0:00:46.276 than at any other time in our history. Meanwhile, no 0:00:46.316 --> 0:00:49.956 one can say for certain when this will end. What 0:00:50.036 --> 0:00:53.876 should the government be doing to help our massive bailout 0:00:53.956 --> 0:00:58.196 or stimulus packages that inject money into the economy actually effective. 0:00:58.956 --> 0:01:02.836 What other options are there facing us? To discuss these 0:01:02.876 --> 0:01:08.116 extremely pressing questions, We're joined by Laurence Summers of Harvard University. 0:01:08.756 --> 0:01:11.796 Larry was chief economist of the World Bank. He was 0:01:11.836 --> 0:01:14.716 first Deputy Secretary of the Treasury under President Linton, and 0:01:14.716 --> 0:01:18.516 then Secretary of the Treasury. He was president of Harvard University, 0:01:18.956 --> 0:01:21.636 and then as an adviser to Barack Obama. He helped 0:01:21.676 --> 0:01:24.956 pull our country through another financial crisis, the one in 0:01:24.996 --> 0:01:31.476 two thousand and eight. We spoke on Monday afternoon. Larry, 0:01:31.716 --> 0:01:34.436 without hyperbole, I think it's fair to say that there's 0:01:34.476 --> 0:01:37.196 no one alive who knows more than you do about 0:01:37.636 --> 0:01:40.676 bailout stimulus, not only in theory, but in its real 0:01:40.716 --> 0:01:43.916 world implementation. And I really want to hear your big 0:01:43.956 --> 0:01:47.036 picture and your small picture account of where we are 0:01:47.156 --> 0:01:50.236 and where we're going here. You've said that the two 0:01:50.276 --> 0:01:53.756 big uncertainties facing us are how long will this last? 0:01:54.156 --> 0:01:57.316 And how fast can the economy reopen? And I agree 0:01:57.356 --> 0:02:00.236 that those are radically uncertain questions. Now, do you have 0:02:00.356 --> 0:02:03.076 something that you want to say on either of those topics, Well, 0:02:03.076 --> 0:02:08.876 I'd start with this. This is a profoundly different economic 0:02:09.196 --> 0:02:13.036 problem than any that I have dealt with in the past, 0:02:13.236 --> 0:02:16.716 or than anyone else has dealt with in the past. 0:02:17.436 --> 0:02:20.356 All the various problems we have dealt with in the 0:02:20.396 --> 0:02:29.076 past were fundamentally about demand and fundamentally about whether the 0:02:29.236 --> 0:02:36.596 economy could produce the demand and keep everything going in 0:02:36.636 --> 0:02:41.436 a way that would enable adequate employment. This is a 0:02:41.516 --> 0:02:46.556 quite different problem. This is a problem of supply. The 0:02:46.596 --> 0:02:51.076 primary reason why the US economy is weak right now 0:02:51.556 --> 0:02:56.796 is that thirty percent of us basically can't work productively 0:02:57.116 --> 0:03:02.396 because we can't work in our workplace, we can't take 0:03:02.436 --> 0:03:08.036 our work home, and that's the main reason why output 0:03:08.156 --> 0:03:13.956 is down and unemployment is up. So any idea that 0:03:14.196 --> 0:03:19.876 this can all be solved with sufficiently ingenious fiscal policy 0:03:19.996 --> 0:03:26.076 or monetary policy is a confusion. The role of fiscal 0:03:26.116 --> 0:03:32.476 monetary policy is a palliative that maintains a measure of 0:03:32.556 --> 0:03:37.476 spending power for those who are unable to be paid, 0:03:38.236 --> 0:03:42.796 and to try to maximize the potential of the economy 0:03:42.916 --> 0:03:48.996 to recover when health conditions permit. But the fundamental constraint 0:03:49.116 --> 0:03:53.036 on the situation lies in the area of health policy, 0:03:53.756 --> 0:04:00.276 not in the area of financial policy or economic policy. Alright, 0:04:00.316 --> 0:04:02.636 you use the word palliative, so let me just get 0:04:02.676 --> 0:04:06.116 some clarity around that, because palliative sometimes sounds like we're 0:04:06.156 --> 0:04:08.796 just making you feel better until you die. I take 0:04:08.796 --> 0:04:10.436 it what you mean is that it's effectively, to use 0:04:10.436 --> 0:04:13.196 a medical metaphor, it's life support. The economy would die 0:04:13.276 --> 0:04:17.356 without the kind of bailout funds that are being passed along, 0:04:17.516 --> 0:04:19.636 But they're not a stimulus in that they're not going 0:04:19.636 --> 0:04:22.476 to stimulate further demand. The only thing that's going to 0:04:22.596 --> 0:04:25.276 change that, if I hear you correctly, is actually reopening 0:04:25.756 --> 0:04:27.836 businesses so that people can get back out as soon 0:04:27.836 --> 0:04:29.796 as it's healthy to do that, and then that would 0:04:29.836 --> 0:04:34.796 eventually restimulate the economy almost they might stimulate demand, but 0:04:35.196 --> 0:04:40.396 stimulating demand doesn't do anything if supply is constrained. I see. 0:04:40.396 --> 0:04:42.316 So the example is I badly want to go to 0:04:42.356 --> 0:04:43.916 a bar right now. I mean, I really want to 0:04:43.956 --> 0:04:45.716 go to a bar, So the demand is there. The 0:04:45.756 --> 0:04:47.476 problem is the bars are not open, so there's no 0:04:47.516 --> 0:04:52.556 supply available for me. Exactly. The story of toilet paper 0:04:52.916 --> 0:04:57.276 is actually illuminating. There's a major toilet paper shortage that 0:04:57.516 --> 0:04:59.556 many of us have encountered when we've gone to the 0:04:59.596 --> 0:05:04.036 grocery store. The original theory that was offered for that 0:05:04.396 --> 0:05:09.396 shortage was people were hoarding just in case. If that 0:05:09.436 --> 0:05:12.916 were the correct theory, at a certain point, after people 0:05:12.956 --> 0:05:17.116 had hoarded enormous supplies, they would stop buying and the 0:05:17.196 --> 0:05:20.236 problem would naturally solve itself. That we might even get 0:05:20.236 --> 0:05:24.036 a toilet paper glut in the stores because people didn't 0:05:24.036 --> 0:05:27.796 need to buy anymore given the inventories they accumulated. That 0:05:27.956 --> 0:05:31.676 is not actually what has happened. What has actually happened 0:05:31.836 --> 0:05:33.836 is it turns out that people are spending a much 0:05:33.956 --> 0:05:38.276 larger fraction of their time in their homes rather than 0:05:38.356 --> 0:05:43.316 in their offices or in restaurants or in bars. And 0:05:43.436 --> 0:05:45.676 it turns out that the nature of the toilet paper 0:05:45.796 --> 0:05:49.116 that is sold for people to use at home is 0:05:49.196 --> 0:05:53.996 different than institutional toilet paper. And so in fact we 0:05:54.076 --> 0:05:58.436 have a genuine shortage of home toilet paper, which is 0:05:58.436 --> 0:06:03.636 a higher softer quality, and we have a potential glut 0:06:04.276 --> 0:06:11.036 of institutional toilet paper. And fundamentally, our problem in the 0:06:11.076 --> 0:06:15.116 toilet paper example is that not all the demand for 0:06:15.236 --> 0:06:18.796 home toilet paper can be fulfilled. If all we do 0:06:18.956 --> 0:06:24.276 is increase purchasing power and we don't increase supply, we're 0:06:24.316 --> 0:06:27.916 not going to increase the level of output. Got it. 0:06:27.996 --> 0:06:30.036 So even if I were prepared to spend twenty bucks 0:06:30.076 --> 0:06:33.036 a roll on toilet paper, it doesn't matter because the 0:06:33.076 --> 0:06:35.796 supply is at present not there for the right kind 0:06:35.836 --> 0:06:37.916 of toilet paper. Right. Or to put it in a 0:06:37.916 --> 0:06:42.876 different way, if you gave purchasing power to people, it 0:06:42.956 --> 0:06:48.796 wouldn't do anything to raise toilet paper production because there's 0:06:48.836 --> 0:06:51.516 no demand for the kind of toilet paper that can 0:06:51.556 --> 0:06:54.236 be produced, and it would just go to bid up 0:06:54.236 --> 0:06:58.156 the price of the kind of toilet paper that is 0:06:58.236 --> 0:07:04.036 already in excess demand. So the point is that in 0:07:04.156 --> 0:07:09.676 order to increase the overall level of output in the economy, 0:07:10.196 --> 0:07:15.756 the really fundamental problem is increasing supply, and that means 0:07:15.836 --> 0:07:19.676 creating situations where people can go back to work in 0:07:20.156 --> 0:07:25.716 productive ways. So some of that would be creating situations 0:07:25.716 --> 0:07:29.676 where people were back at work, and therefore the demand 0:07:29.716 --> 0:07:34.196 for toilet paper was again filling its normal pattern. Some 0:07:34.276 --> 0:07:37.116 of it would be addressed if you could find ways 0:07:37.156 --> 0:07:43.996 of converting institutional toilet paper production capacity into the production 0:07:44.116 --> 0:07:49.036 of soft home toilet paper. But fundamentally you have to 0:07:49.036 --> 0:07:52.596 address the problem on the supply side. What are the 0:07:52.636 --> 0:07:56.596 implications of that analysis for what will happen when and 0:07:56.756 --> 0:08:00.436 if we are able to, in some gradual stepped way, 0:08:01.036 --> 0:08:03.956 start getting workers back into the productive parts of the 0:08:03.956 --> 0:08:07.436 economy where they can help restore the supply. It would 0:08:07.436 --> 0:08:11.956 seem to imply that the difficulty of getting the match 0:08:12.196 --> 0:08:15.076 up and running would be addressed, maybe much more quickly 0:08:15.476 --> 0:08:18.716 than under circumstances of a more ordinary demand crisis. Is 0:08:18.716 --> 0:08:22.676 that a fair implication? I think potentially that's right. I 0:08:22.836 --> 0:08:28.676 have used the example of what happens in Truro, Massachusetts, 0:08:28.676 --> 0:08:32.436 where I'm speaking from right now. Truro is a vacation 0:08:32.556 --> 0:08:37.436 town on the tip of Cape Cod. Every winter Truro 0:08:37.636 --> 0:08:40.756 has what, in a certain sense is a terrible depression. 0:08:41.196 --> 0:08:45.156 It's employment level, it's GDP go down by more than 0:08:45.196 --> 0:08:51.116 fifty percent, and every summer it rises up. And so 0:08:51.156 --> 0:08:55.476 I think if we're able to prevent the destruction of 0:08:55.676 --> 0:09:01.396 enterprises through bankruptcy and liquidation, I think there's the prospect 0:09:01.476 --> 0:09:05.396 that if we can get health conditions back to normal, 0:09:06.036 --> 0:09:12.596 then we can move back fairly quickly in terms of 0:09:12.636 --> 0:09:18.076 economic performance. I think it's basically misguided in light of 0:09:18.116 --> 0:09:24.676 this analysis, that we're spending trillions and trillions on broad 0:09:24.756 --> 0:09:31.156 gaged economic and financial policies and we're scrimping on health 0:09:31.236 --> 0:09:38.596 policies that have the prospect for bringing back the economy faster. 0:09:39.076 --> 0:09:46.436 The overwhelming priority should be every possible experiment in terms 0:09:46.516 --> 0:09:54.596 of developing more tests, in terms of alternative contact tracing systems, 0:09:55.196 --> 0:10:01.356 anything that can put the health crisis behind us is 0:10:01.556 --> 0:10:06.756 by far the highest payoff investment in this moment. And 0:10:07.076 --> 0:10:13.436 that's obviously, in parts a matter of dollars, but it's 0:10:13.596 --> 0:10:18.956 also a matter of proper organization. Larry, with respect to 0:10:18.996 --> 0:10:22.276 your seasonal analogy, it's one of the more hopeful things 0:10:22.316 --> 0:10:24.196 that I've heard, and I just want to ask you 0:10:24.236 --> 0:10:26.676 a question about it. A few weeks ago I interviewed 0:10:26.716 --> 0:10:28.876 for the podcast one of your colleagues in the economics 0:10:28.876 --> 0:10:31.796 department at Harvard, Stephanie Stansheva, and one of the points 0:10:31.796 --> 0:10:36.756 that she made is that as economic relationships break down 0:10:36.836 --> 0:10:40.756 as people are out of work, the transaction cost of 0:10:40.876 --> 0:10:45.356 getting people back to recreate those relationships rises, and so 0:10:45.476 --> 0:10:47.716 it becomes hard to do. Now. In your example of 0:10:47.796 --> 0:10:51.596 Truro or any vacation community which in a sense has 0:10:51.596 --> 0:10:55.956 a big decline out of season, usually long term economic 0:10:55.996 --> 0:10:59.516 relationships are retained even over the out of season period 0:10:59.556 --> 0:11:01.916 of time. Right, people have the shops that they go to, 0:11:01.996 --> 0:11:04.116 and they have the caretakers who work on their homes, 0:11:04.116 --> 0:11:07.596 and their contractors and so forth and so on. Is 0:11:07.636 --> 0:11:10.236 there a danger do you think in this particular circumstance 0:11:10.636 --> 0:11:13.196 that the re establishment of those relationships will just be 0:11:13.316 --> 0:11:16.996 much more difficult in the wake of the worksoppages that 0:11:16.996 --> 0:11:20.676 we have now than it is in a seasonal response situation. 0:11:21.356 --> 0:11:25.076 It depends on how long it takes, and it depends 0:11:25.116 --> 0:11:29.556 on the nature of the relationships in Truro, Massachusetts or 0:11:29.596 --> 0:11:36.476 a vacation town. As you move from July to September, 0:11:36.596 --> 0:11:41.076 and then you go around again until July. There are 0:11:41.076 --> 0:11:44.236 probably two kinds of things that happen. They're the chefs 0:11:44.316 --> 0:11:48.236 at the restaurants, and they're the shops that I remain 0:11:48.436 --> 0:11:51.476 loyal to. And it turns out that people have long 0:11:51.556 --> 0:11:54.516 memories and they do other things during the summer, and 0:11:54.556 --> 0:11:57.636 then they find their way back. Then there are other 0:11:57.716 --> 0:12:02.796 kinds of relationships, the waitresses in the restaurants, where there 0:12:02.836 --> 0:12:06.196 probably isn't such long memory, but where there isn't such 0:12:06.276 --> 0:12:09.796 great costs to a restaurant to having a different workforce 0:12:10.436 --> 0:12:16.076 of waitresses in twenty twenty than they had in twenty nineteen. 0:12:16.756 --> 0:12:22.956 But I think it's easy to overdo this idea that 0:12:23.476 --> 0:12:31.596 we're doomed because a relationship has been separated for some 0:12:31.676 --> 0:12:36.916 substantial interval. And I think it is very much wrong 0:12:37.396 --> 0:12:42.236 to think that people have to continue being in the workplace. 0:12:42.876 --> 0:12:48.036 It's a ubiquitous feature. For example, over decades of automobile 0:12:48.116 --> 0:12:53.316 companies that in recessions they quote laid off automobile workers 0:12:53.636 --> 0:13:00.676 who remained attached to those companies, who received significant unemployment insurance, 0:13:01.196 --> 0:13:05.996 and then when demand picked back up they were rehired. 0:13:06.356 --> 0:13:09.436 So I think we need to protect the peace people. 0:13:09.876 --> 0:13:15.436 There are more market mechanisms than people appreciate for protecting 0:13:15.596 --> 0:13:22.396 other aspects. Suppose I am a shopkeeper in a shopping 0:13:22.476 --> 0:13:27.316 center and I can't open because I'm a clothing store 0:13:27.356 --> 0:13:32.116 and I'm not deemed to be essential during the corona period, 0:13:32.796 --> 0:13:36.796 I will stop paying my rent. Now it's possible that 0:13:36.876 --> 0:13:42.956 my landlord will evict me and that my shop will 0:13:43.036 --> 0:13:46.396 be lost. On the other hand, my landlord's likely to 0:13:46.396 --> 0:13:49.276 look at the situation and say, well, if I evict him, 0:13:49.636 --> 0:13:51.076 who am I going to get to come into his 0:13:51.196 --> 0:13:55.236 place in the midst of this? And this will probably 0:13:55.276 --> 0:13:57.876 be over in a few months, and he'll be able 0:13:57.956 --> 0:14:01.476 to pay rent again if he was before, and will 0:14:01.556 --> 0:14:04.996 work some solution out with respect to the period when 0:14:05.036 --> 0:14:09.556 he couldn't earn revenue, and the relationship will be deserved. 0:14:10.196 --> 0:14:15.436 So I am more optimistic about the economy's ability to 0:14:15.556 --> 0:14:22.556 remain resilient. If the health problems can be put behind us, 0:14:22.636 --> 0:14:25.276 then some of my friends are we'll be back in 0:14:25.316 --> 0:14:37.436 just a moment. Larry, I find it very compelling to 0:14:37.476 --> 0:14:41.236 say that we would very quickly recoup any investment that 0:14:41.276 --> 0:14:44.436 we made in technology that would let us get back 0:14:44.476 --> 0:14:47.516 to work and testing is a really good example of that. 0:14:48.716 --> 0:14:51.516 The challenge that I'm struggling with in that context is 0:14:51.836 --> 0:14:54.716 sort of why we aren't doing more at that level, 0:14:54.716 --> 0:14:56.916 And as far as I can make out, the reason 0:14:57.076 --> 0:15:01.276 seems to be a perception, maybe an accurate perception, that 0:15:01.276 --> 0:15:04.556 there are a whole number of bottlenecks in enabling testing 0:15:04.716 --> 0:15:07.316 on the kind of scale of you, on the order 0:15:07.356 --> 0:15:09.556 of millions of tests a day in the United States 0:15:09.556 --> 0:15:12.676 that would be necessary to get this going. Now, that's 0:15:12.716 --> 0:15:15.076 not an argument for not trying, but it does raise 0:15:15.116 --> 0:15:19.276 the question of real world distribution bottlenecks, and I mean 0:15:19.316 --> 0:15:22.516 things like the number of swabs, the number of chemical 0:15:22.556 --> 0:15:26.116 reagents available. And there could, of course be technological innovations 0:15:26.156 --> 0:15:28.036 that would let us do these things faster and without 0:15:28.036 --> 0:15:30.476 their techniques, and of course in principle that's all possible, 0:15:30.716 --> 0:15:33.316 but it raises the question of time scale, and maybe 0:15:33.316 --> 0:15:35.036 what a lot of people are thinking is it doesn't 0:15:35.116 --> 0:15:38.476 make sense to invest heavily in this given the improbability 0:15:38.956 --> 0:15:44.796 of success. Let's be concrete for a moment, our lost 0:15:45.116 --> 0:15:50.436 GDP as a consequence of this crisis is about eighty 0:15:50.476 --> 0:15:55.196 billion dollars a week. So if we accelerate the recovery 0:15:55.276 --> 0:16:00.796 path by one week, that's worth eighty billion dollars. That 0:16:01.036 --> 0:16:05.556 dwarfs any number that anybody is remotely thinking of. In 0:16:05.716 --> 0:16:12.716 terms of testing. Economies are remarkably flexible things, and they 0:16:12.796 --> 0:16:18.996 do respond to incentives. They may not respond in three days, 0:16:19.036 --> 0:16:23.316 but they really do respond over time. This is not 0:16:23.476 --> 0:16:28.996 a time to be worried about efficient pricing of swabs, 0:16:29.716 --> 0:16:33.196 given the magnitude of the stakes. This is a reason 0:16:33.276 --> 0:16:38.636 to be trying everything. If the probability of success on 0:16:38.796 --> 0:16:42.876 something that's worth eighty billion dollars a week is only 0:16:42.916 --> 0:16:47.356 one fourth, well, that's twenty billion dollars a week. It's 0:16:47.396 --> 0:16:53.036 been estimated that tests cost fifty dollars. At fifty dollars 0:16:53.556 --> 0:16:57.196 a test, you can do a lot of tests for 0:16:57.236 --> 0:17:01.676 a very small fraction of twenty billion dollars a week. 0:17:01.716 --> 0:17:04.596 And that's assuming it's one week with the twenty five 0:17:04.716 --> 0:17:08.476 percent probability of success. Larry, I want to ask you 0:17:08.516 --> 0:17:13.116 about the question of who takes the haircut in this bailout. 0:17:13.196 --> 0:17:15.556 One of the points that you've made repeatedly is that 0:17:15.596 --> 0:17:19.516 there's real fundamental loss that's happening under these circumstances, that 0:17:19.556 --> 0:17:21.836 this isn't the kind of set of economic problems that 0:17:21.836 --> 0:17:25.396 can be solved or mitigated just by printing money or 0:17:25.476 --> 0:17:27.756 lowering interest rates. So that means there is real loss 0:17:27.796 --> 0:17:30.676 that's going to take place in the economy. The bailout 0:17:31.076 --> 0:17:35.436 process is just beginning, and inevitably corporate America will have 0:17:35.516 --> 0:17:38.436 its hand out seeking bailouts. And you've had lots of 0:17:38.436 --> 0:17:41.316 first hand experience with this. What's your view. I mean, 0:17:41.316 --> 0:17:44.756 should the airline shareholders have to take a big hit here, 0:17:44.836 --> 0:17:47.516 or should the airlines be bailed out as after nine 0:17:47.556 --> 0:17:50.036 to eleven and so on and so forth. For other industries, 0:17:50.076 --> 0:17:54.076 including maybe most prominently the oil and gas industry, I 0:17:54.116 --> 0:18:00.556 think there's almost no reason why shareholders be insulated from 0:18:00.596 --> 0:18:08.156 these losses. Shareholders are people who invested money with the 0:18:08.236 --> 0:18:11.876 expectation that, unlike people who put their money in a 0:18:11.916 --> 0:18:16.836 bank or bought US government financial instruments, they would earn 0:18:16.916 --> 0:18:21.196 a premium of four or five percent a year. And 0:18:21.276 --> 0:18:24.436 the reason they would earn that premium is that they 0:18:24.436 --> 0:18:30.796 were taking the risk that if something predictable and uncertain happened, 0:18:31.356 --> 0:18:36.876 they would lose money or that if something unpredictable and 0:18:37.156 --> 0:18:41.956 uncertain happened, they would lose money, that they were being 0:18:42.036 --> 0:18:50.076 compensated for subjecting themselves to what Donald Rumsfeld called unknown unknowns. 0:18:50.116 --> 0:18:55.556 And now an unknown unknown has happened, and they got 0:18:55.596 --> 0:18:59.836 paid for taking this risk, and it seems to me 0:18:59.916 --> 0:19:03.196 it would be very wrong to try to insulate them 0:19:03.756 --> 0:19:08.356 from that risk. All the more because the distribution of 0:19:08.436 --> 0:19:11.956 shareholder is a distribution of people who are far, far, 0:19:11.996 --> 0:19:19.356 far more affluent than most American citizens. Now, there will 0:19:19.516 --> 0:19:25.316 certainly be cases where you can't really protect workers without 0:19:25.396 --> 0:19:30.076 protecting the enterprises of which they're apart. So, just as 0:19:30.156 --> 0:19:36.236 there are unintended victims of necessary actions in wartime, there 0:19:36.276 --> 0:19:44.956 are unintended beneficiaries of necessary financial bailouts. But the objective 0:19:45.676 --> 0:19:51.356 should be to maintain economic activity for the benefit of 0:19:51.836 --> 0:19:59.516 customers and workers, not for the benefit of shareholders or 0:19:59.756 --> 0:20:08.276 lenders who have accepted substantial risk in return for over 0:20:08.316 --> 0:20:13.796 many years having been paid a premium interest rate. The 0:20:13.876 --> 0:20:17.716 airline industry, in a way is a classic instance, because 0:20:18.076 --> 0:20:21.356 there are half a dozen instances in the last twenty 0:20:21.436 --> 0:20:25.516 years when airlines have gone through bankruptcy, their debts have 0:20:25.596 --> 0:20:28.356 been written down, their share prices have been written way 0:20:28.396 --> 0:20:31.756 way down and they've continued to fly. And most of us, 0:20:31.796 --> 0:20:34.076 as we stood in line to get on board, had 0:20:34.116 --> 0:20:37.676 no idea whether an airline was bankrupt or not. So 0:20:37.716 --> 0:20:43.996 we need to stop confusing bankruptcy with the destruction of 0:20:44.036 --> 0:20:51.076 an enterprise's productive capacity. Just in support of your argument, Larry, 0:20:51.356 --> 0:20:53.716 I think it's even fair to say that pandemic doesn't 0:20:53.756 --> 0:20:56.836 count as an unknown unknown in Donald Rumsselo's formulation. It's 0:20:56.836 --> 0:20:58.956 a known unknown. You know, from the time that I 0:20:58.996 --> 0:21:01.756 was in seventh grade, a central part of our curriculum 0:21:01.956 --> 0:21:05.276 was pandemic is a thing. It has occurred historically, it 0:21:05.316 --> 0:21:08.316 can occur again. Their circumstances of globalization that can give 0:21:08.396 --> 0:21:12.796 rise to it. We've seen various potential pandemics being limited 0:21:12.836 --> 0:21:14.556 or constraint that may have led people to make a 0:21:14.596 --> 0:21:18.116 mistake in terms of the probabilities of an actual pandemics 0:21:18.316 --> 0:21:21.396 breaking out, But that such a thing could exist was 0:21:21.636 --> 0:21:24.956 certainly very clear to everybody and should have been therefore 0:21:24.996 --> 0:21:27.556 a known unknown rather than an unknown unknown. I think 0:21:27.596 --> 0:21:33.236 that's right. The idea that we could have a pandemic 0:21:33.756 --> 0:21:39.636 should have been in people's minds. Most of the leading 0:21:39.676 --> 0:21:45.156 financial authorities who were involved in the effort to establish 0:21:45.316 --> 0:21:50.516 new financial regulation said sometime in the last few years 0:21:50.996 --> 0:21:54.276 that they thought we would never have a financial crisis 0:21:54.356 --> 0:21:57.636 as serious as two thousand and eight in their lifetimes. 0:21:58.356 --> 0:22:00.916 One of the many reasons why I didn't join that 0:22:01.356 --> 0:22:07.876 view was an awareness that if we had pandemic flew 0:22:08.036 --> 0:22:11.796 of the kind we'd had nineteen eighteen, it would probably 0:22:12.476 --> 0:22:15.796 be an immense financial crisis, and that that was a 0:22:15.836 --> 0:22:19.956 significant risk. So I think you're right, Larry. Before I 0:22:20.036 --> 0:22:21.716 let you go, I just want to ask you one 0:22:21.836 --> 0:22:25.476 last sort of macroeconomic question that's puzzling me. And it's 0:22:25.516 --> 0:22:28.596 Corona adjacent, let's say, and that is the role that 0:22:28.636 --> 0:22:31.236 the United States has just played, the President Trump has 0:22:31.276 --> 0:22:35.476 just played in attempting to broker a deal with other 0:22:35.556 --> 0:22:41.076 large petroleum producing companies to shore up oil prices. Now, 0:22:41.116 --> 0:22:42.916 on the one hand, you know, there are lots of 0:22:42.916 --> 0:22:45.596 people in the United States who were working in energy 0:22:45.596 --> 0:22:48.196 related businesses or in oil related businesses, and so I 0:22:48.196 --> 0:22:50.236 suppose this could be justified on the grounds that it's 0:22:50.356 --> 0:22:52.956 an attempt to help out American workers in shore up 0:22:52.956 --> 0:22:55.396 in American industry. On the other hand, it sort of 0:22:55.436 --> 0:22:57.796 looks like the United States participating, or it is the 0:22:57.836 --> 0:23:01.356 United States participating very directly in the kind of cartelization 0:23:01.836 --> 0:23:04.476 that historically we as a country have been at least 0:23:04.516 --> 0:23:07.356 publicly skeptical about. You know, the United States was never 0:23:07.436 --> 0:23:10.316 a member of OPEC and at least actually never talk 0:23:10.396 --> 0:23:13.516 the talk of how great it is to assure that 0:23:13.676 --> 0:23:19.356 prices would be protected from real world changes, in this instance, 0:23:19.596 --> 0:23:22.396 in the demand side rather than the supply side. Can 0:23:22.436 --> 0:23:26.076 you just give me a you know. Larry Summer's reaction 0:23:26.316 --> 0:23:28.476 to this, was this something the United States should have done? 0:23:28.476 --> 0:23:30.556 And if so, why, because it can be a little 0:23:30.556 --> 0:23:33.156 hard to see from the outside. I think if I 0:23:33.236 --> 0:23:37.716 had been the policymaker, I would not have done it, 0:23:37.876 --> 0:23:42.316 essentially for the reason you describe this is a cartel. 0:23:42.876 --> 0:23:47.636 We don't usually believe in supporting cartels. And it's not 0:23:47.796 --> 0:23:52.116 like our only interest is as an exporter. We have 0:23:52.316 --> 0:23:54.756 moved in the last few years and so now we're 0:23:54.876 --> 0:23:58.716 just about self sufficient. But that means the US consumer 0:23:58.796 --> 0:24:03.676 interest is about comparable to the US producer interest, and 0:24:03.716 --> 0:24:08.796 the consumer interest, of course loses when we push prices up. 0:24:09.476 --> 0:24:14.676 Most of the other winners from higher prices are places 0:24:14.716 --> 0:24:19.316 like Russia and Saudi Arabia where it's not at all 0:24:19.356 --> 0:24:24.356 clear that our national interests are served by their becoming wealthier. 0:24:24.716 --> 0:24:28.676 So I would not have done this. That said, there 0:24:28.836 --> 0:24:34.276 is a problem, which is the tendency towards what economists 0:24:34.356 --> 0:24:38.516 call a cobweb cycle. And if you allow the price 0:24:38.636 --> 0:24:43.996 to collapse, then the profits collapse, and then the funds 0:24:44.036 --> 0:24:48.716 for investment collapse, and then down the road you have 0:24:48.756 --> 0:24:53.036 a big supply shortage and the price spikes right back up. 0:24:54.036 --> 0:24:57.956 So there is that concern. I think it would be 0:24:57.956 --> 0:25:03.796 better met by reinforcing investment during this difficult period. I 0:25:03.876 --> 0:25:09.316 also think that you're a ted idealistic on the these 0:25:09.396 --> 0:25:13.556 kinds of arrangements. I remember when I served in President 0:25:13.596 --> 0:25:19.356 Clinton's administration being the dissenting voice, but the dissenting voice 0:25:19.396 --> 0:25:23.076 who lost the argument when the United States was an 0:25:23.236 --> 0:25:29.036 enthusiastic participant in the organization of an aluminum cartel, with 0:25:29.516 --> 0:25:35.396 the rationale being to protect American aluminum producers who employed 0:25:35.436 --> 0:25:39.716 a fair number of people, and to be supportive of 0:25:40.276 --> 0:25:42.996 Russia at a time when we were trying to support 0:25:43.276 --> 0:25:48.956 President Yelson and they were a substantial aluminum exporter. So 0:25:49.196 --> 0:25:52.436 I think it would be wrong to think that this 0:25:52.556 --> 0:25:56.236 was anything like the first time the United States had 0:25:56.276 --> 0:26:02.116 been substantially supportive of a cartel in a key global 0:26:02.156 --> 0:26:06.596 commodity on grounds of price stability, although the rationale here 0:26:06.676 --> 0:26:10.236 may also be a domestic rationale goal of helping an 0:26:10.236 --> 0:26:12.596 industry with which the president and his party are seen 0:26:12.636 --> 0:26:14.956 as being pretty closely aligned. If I can say something 0:26:14.996 --> 0:26:18.756 the opposite of idealistic, as I said in the aluminum example, 0:26:18.836 --> 0:26:23.356 that was also part of the calculation. I'm with the 0:26:23.396 --> 0:26:29.196 economics profession and a lack of enthusiasm for cartels, but 0:26:29.556 --> 0:26:32.596 it'd be a mistake to overstate the strength of the 0:26:32.636 --> 0:26:36.996 American tradition in opposing them. Larry, thank you very much 0:26:37.036 --> 0:26:39.316 for your analysis and your time. There's a lot to 0:26:39.356 --> 0:26:41.716 think about there, some of it a little more hopeful 0:26:41.756 --> 0:26:43.996 and some of it a little more pessimistic than other 0:26:43.996 --> 0:26:46.916 things that I've heard, but all of it deeply insightful 0:26:47.036 --> 0:26:50.796 and informed by your distinctive combination of knowing the theory 0:26:50.876 --> 0:26:53.636 and having done the reality. So thank you very very much. 0:26:53.876 --> 0:26:58.516 Thank you. Speaking to Larry Summers, you get a strong 0:26:58.636 --> 0:27:02.356 sense of both how serious the challenges are that are 0:27:02.396 --> 0:27:06.276 facing our economy now and also a hint of greater 0:27:06.316 --> 0:27:10.676 optimism than some other sources have expressed about the probabilities 0:27:10.716 --> 0:27:13.356 of our being able to turn it around. On the 0:27:13.396 --> 0:27:16.396 one hand, Larry is crystal clear that this is not 0:27:16.476 --> 0:27:19.396 the same kind of economic crisis that we've faced before, 0:27:19.876 --> 0:27:22.876 and that therefore government money to ordinary people and to 0:27:22.996 --> 0:27:26.076 businesses is not going to take the form of a 0:27:26.156 --> 0:27:29.316 stimulus that will get things going again. To the contrary, 0:27:29.476 --> 0:27:33.276 Larry says very very clearly, it's just to keep us 0:27:33.516 --> 0:27:37.396 going for now. It's not going to turn things around. 0:27:38.156 --> 0:27:40.756 That's a serious, serious concern, and one that I think 0:27:40.876 --> 0:27:44.556 is all too often missed by people who think about 0:27:44.596 --> 0:27:48.716 this crisis in terms of past crises. On the other hand, 0:27:48.876 --> 0:27:51.916 Larry also thinks that there's an argument for seeing this 0:27:51.996 --> 0:27:55.316 current crisis as a bit like a seasonal stoppage in 0:27:55.396 --> 0:27:58.156 an industry that operates by the seasons. And if he's 0:27:58.236 --> 0:28:01.316 right about that, then our capacity to restart the economy 0:28:01.636 --> 0:28:05.356 once health and safety concerns have been alleviated may actually 0:28:05.436 --> 0:28:10.276 be substantially greater than other analysts have such tested. There's 0:28:10.276 --> 0:28:13.876 a bit of each in Larry's analysis, some sense of 0:28:13.876 --> 0:28:17.916 the gravity of the situation, some cautious optimism about the 0:28:17.956 --> 0:28:21.796 potential for the future. You can be sure that we're 0:28:21.796 --> 0:28:24.876 going to continue to stay very closely on top of 0:28:24.916 --> 0:28:28.636